Take Care Before Jumping Onto Fathom Holdings Inc. (NASDAQ:FTHM) Even Though It's 37% Cheaper

The Fathom Holdings Inc. (NASDAQ:FTHM) share price has softened a substantial 37% over the previous 30 days, handing back much of the gains the stock has made lately. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 38% in that time.

Following the heavy fall in price, Fathom Holdings may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Real Estate industry in the United States have P/S ratios greater than 2.8x and even P/S higher than 9x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Fathom Holdings

How Fathom Holdings Has Been Performing

Fathom Holdings' revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Fathom Holdings.

Is There Any Revenue Growth Forecasted For Fathom Holdings?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Fathom Holdings' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. Still, revenue has fallen 5.9% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 14% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 13% growth , the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that Fathom Holdings' P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

Shares in Fathom Holdings have plummeted and its P/S has followed suit. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Fathom Holdings' revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Fathom Holdings (2 are significant) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.